PagerDuty Inc (PD) Q1 2026 Earnings Call Highlights: Strong Revenue Growth Amidst Market Challenges

Revenue: $120 million, up 8% year over year. Non-GAAP Operating Margin: 20%, exceeding target by 500 basis points. Annual Recurring Revenue (ARR): $496 million, 7% growth year over year. Dollar-Based Net Retention: 104%. Gross Margin: 86%, at the high end of the 84% to 86% target range.

Operating Income: $24 million, 20% of revenue. Cash from Operations: $31 million, 26% of revenue. Free Cash Flow: $29 million, 24% of revenue. Cash and Investments: $597 million. Total Paid Customers: 15,247, with 127 net new customers added.

Guidance for Q2 Fiscal 2026 Revenue: $122.5 million to $124.5 million, growth rate of 6% to 7%. Guidance for Full Fiscal Year 2026 Revenue: $493 million to $499 million, growth rate of 5% to 7%. Net Income per Diluted Share Guidance for Q2 Fiscal 2026: $0.19 to $0.20. Net Income per Diluted Share Guidance for Full Fiscal Year 2026: $0.95 to $1. Warning! GuruFocus has detected 2 Warning Signs with PD.

Release Date: May 29, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Positive Points PagerDuty Inc (NYSE:PD) delivered revenue of $120 million, representing 8% growth at the top of their guidance range. Non-GAAP operating margin reached 20%, exceeding their target by 500 basis points. Significant improvement in net-new paid customers, driven by a new commercial digital acquisition strategy. Strengthened strategic partnership with AWS, expanding integration capabilities and serving nearly 6,000 joint customers.

Public sector expansion achieved FedRAMP Low authorization, enabling federal agencies to leverage AI and automation capabilities. Negative Points Dollar-based net retention was 104%, reflecting higher than expected customer downgrades in the enterprise segment and elevated churn in the commercial business. Transitional dynamics in the go-to-market motion led to inconsistent sales and marketing execution. Organizational transitions and go-to-market execution challenges impacted Q1 results. Revenue growth guidance for the full fiscal year 2026 was revised down to a range of 5% to 7%, compared to the previous range of 6% to 7%.

Enterprise churn was noted, with downgrades due to company mergers and cautious spending due to macroeconomic uncertainty. Q & A Highlights Q: Can you discuss the enterprise pressure and the impact of rapid innovation in IT and DevOps, particularly with generative AI? Are enterprises hesitant to commit to multiyear contracts due to market evolution? A: Jennifer Tejada, CEO: The primary issue is execution rather than market hesitancy. We experienced gaps in customer engagement due to significant transformations, such as reassigning territories and onboarding new reps. However, new logo growth, especially from AI companies, indicates strong demand. We are confident that our experienced sales force will drive stronger execution in the latter half of the year.

Story Continues Q: The full-year guidance implies revenue growth exiting the year at 5%. How derisked is this guidance, and what precautions were considered? A: Howard Wilson, CFO: The guidance is prudent, reflecting organizational transitions and go-to-market execution challenges in Q1. We expect improvements in bookings in the latter half of the year as sales reps ramp up, but the guidance accounts for early-year challenges. Q: What adoption trends are you seeing for new modules like PagerDuty Advance and Enterprise Plus? A: Jennifer Tejada, CEO: Adoption is in early stages, with strong interest in our generative AI solutions. Customers appreciate the chat-native experience and our ability to integrate with platforms like Teams and Slack.

We are reducing friction by seeding access to new features across pricing packages and enabling easier access to AI products. Q: Can you provide more color on the enterprise churn and downgrades? Was this broad-based, and how did it impact the quarter? A: Jennifer Tejada, CEO: We saw elevated churn in SMBs and downgrades in enterprise due to factors like company mergers. The macro environment remains uncertain, but we are focusing on helping customers realize operational efficiencies. Our quarters are more back-end loaded, and April was particularly challenging. Q: How did non-incident management products perform this quarter, and what trends are you seeing? A: Jennifer Tejada, CEO: AIOps continues to lead growth, with new use cases emerging, such as helping customers manage observability costs.

Our AIOps offering is maturing, and customers are using it to prioritize tech debt reduction and manage operational risks. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. View Comments